The Second Enron Scam: The Saga of Mukta-Panna Oil Fields

The World Bank ran a series of advertisements in the US last year that said that a buck spent by the Bank as loan created a much bigger bang for US companies. They gave also a few examples: in an African country, a loan of few millions, led to a quarter of a billion dollar contract for McDermott, a US multi-national. A very big bang indeed for very few bucks. The examples that they could have given from India are also equally apt. Enron, in a consortium with Reliance, was handed over the Mukta Panna oil-fields after ONGC took a loan from the World Bank. The loan had clear conditionalities attached: the oil fields discovered by ONGC and Oil India would have to be developed as joint ventures with private and foreign capital. Of course, the Indian state went one better. It decided to hand over to MNCs for a pittance, oil fields discovered by ONGC at a great cost. No wonder Comptroller  and Auditor General of India called this scandalous and passed severe strictures on the Government.

The privatisation spree that India has gone in for in the last few years, has had dual objectives. One is the objective of global capital operating through institutions such as the World Bank, IMF etc., for opening up the Indian economy to MNCs. The other is the desire of Indian monopoly houses to participate in this loot of the Indian public sector in connivance with venal political sections. It is not surprising that money, allegedly paid by Reliance to the then Petroleum Minister figures prominently in the buying of MPs during the no-confidence motion against the Rao Government. The issue here is that the sums involved in such transactions are truly staggering. The Mukta-Panna oil fields are worth at least $4-6 billion in terms of known deposits of oil and gas. The actual deposits are likely to be much higher. And if this was not enough, we are now paying higher than international prices for oil from fields discovered by us. For gas, the amount that was paid last year is even twice the value that Enron was able to charge in Jamaica from its own oil fields. Thus, the privatisation of just two oil fields can give enormous “benefits” to those taking decisions. The argument that private capital reduces the role of what the economists call “rent”, read corruption, is completely spurious as it conveniently forgets that the privatising such state assets can yield a much larger rent then could be realised by developing them.

It is worthwhile to make a detailed analysis of the Mukta-Panna oil fields and how the process of privatisation is currently taking place. The Government of India forced ONGC to take a loan of 450 million dollars in 1991 with certain conditions attached. This, though ONGC had known reserves which it had discovered and could have easily raised an equivalent loan in the world financial market. However, those were the years that the Finance Ministry was forcing the public sector to take loans from the World Bank and thus make easier its task of privatising the Indian economy. The condition that the World Bank attached was that ONGC and Oil India would have to have joint ventures with private and foreign capital. The 450 million dollars were the few bucks — the bang was not far behind Mukta-Panna, Tapti and Ravva oil fields worth billions of dollars were handed over to private and foreign capital, virtually without any payment.

 The Indian state has had own twist to the privatisation agenda of the Bank. For those running the state, privatisation was the big bonanza, particularly as there was a serious capital crunch and lack of development funds. In any case, the net present value (NPV) of these contracts — the total amount that would be earned by the companies discounted to their current values — is typically in billions of dollars. Enron’s contract for the infamous Dhabol project has a net present value of Rs. 50,000 crore, a figure more than 10 times the total budget of MSEB! The Mukta-Panna oil field is not an isolated incident — it is part of the globalistaion and rent seeking nature of capital, realised though privatisation of public assets. The recent melt down of the economy of the Asian “Tigers” has also shown the true nature of privatisation e.g., the Indonesian and the Thai political elite amassed billions through loot of its public assets, and did this hand in glove with the MNCs. No wonder that these economies were paraded around the world as “model economies” by the IMF and the World Bank in their crusade against the state sector. It is only after the melt down that these entities are now discovering all kinds of hidden weaknesses in these economies including corruption, even though this has been public knowledge world over.

 Following the World Bank loan in 1991, tenders were floated in 1992 August, for 12 medium sized and 31 small sized oil fields. This included the Mukta-Panna oil fields which had already been developed by ONGC and was producing oil. This, though the Ministry of Petroleum had earlier clarified that the oil fields that were already developed would not be hawked to the private sector. It must be noted that the major cost in the oil industry is in finding oil and not developing it. Oil exploration is uncertain business and needs huge amount of capital as most test drilling does not produce a strike. The global oil majors have never shown any interest in oil exploration in the country: they have enough reserves in their oil fields in other countries for them not to invest money in exploring India. ONGC thus was formed in 60’s, at that time with Rumanian and Russian help to develop Indian capabilities and find oil so as to conserve scarce foreign exchange. Whenever India has tried to involve major oil companies, their interest has been only in those areas that ONGC has already explored and struck oil. Thus Bombay High and in oil fields such as Mukta-Panna, where there are known reserves and therefore no risk is involved are areas they have shown repeated interest.

 The bids received and the evaluation done for Mukta-Panna as pointed out by CAG, was full of holes. Thus, the Enron-Reliance bid was “received” three months after the last date which was unilaterally extended by the Ministry of Petroleum on the day that the bid was being received. No evaluation criteria was laid down in the tender: exactly the same as in the Telecom tender for privatisation floated by Sukh Ram. The scenario is by now familiar: first decide to hand over developed and prime public assets, then vitiate the tendering process and last evaluate using a completely flexible “criteria” based on who you want to favour.

 That favour was shown to the Enron-Reliance combine is clear. The corroborative evidence is now available from the Jharkhand Mukti Morcha bribery case. It has now been recorded as evidence that Rs. 4 crore was paid by Reliance industries to Satish Sharma, the then Petroleum Minister, which was subsequently used  to bribe MPs. Of course, given the size of the contract, this was only the tip of the iceberg: the actual amounts must have been much bigger.

 How much did the country lose on account of this deal? First, let us take the basis of the evaluation. Though the known reserves of the oil field was 31.35 million metric tonnes, during evaluation it was brought down to 14.5 million, that too without any explanation. And the known reserves are always an under-estimate: the actual reserves are likely to be much larger. Further, ONGC’s costs of at least Rs. 500 crore for developing the oil field was not compensated at all. Instead, it was given a pittance of 12.6 crore for discovering the oil field, and a production bonus payable in two tranches — 8 and 14 years later. The net present value of these payments are almost zero and in no way compares with the original costs incurred by ONGC for developing the oil field. The total payment made to GOI was 12 crore before handing over of these fields. ONGC has been given a 40% equity for handing over assets it fully owned and had partially developed. Thus 60% of the equity of a $4-6 billion oil field was handed over for Rs.12 crore!

 However, if we think that this is the only loss to the country: handing over our assets cheaply to private and foreign capital, we are under-estimating the greed and rapacity of capital. The Government of India is now committed to pay a premium of $4 per barrel over and above the international price of crude to Enron-Reliance even though we had discovered the oil field and thus incurred the major cost: that of exploration. This against $8 it pays to ONGC. And if this were not enough, we are now paying Enron-Reliance for gas twice what Enron gets for its own oil fields in Jamaica. The loot was not a one time event: it still continues.

 The Mukta-Panna case in now before the Delhi High Court as a public interest litigation. It was investigated by a CBI officer before he was transferred. There are other oil fields that have also been similarly handed over to private capital. The Tapti oil field was also handed over to the same consortium while the Ravva oil field in the Krishna Godavari basin has been transferred to a Videocon-Marubeni consortium. Enron’s inroads into India was not limited to the power sector. And the Petroleum Ministry under Satish Sharma, had its own saga of corruption, much of which still remains to be fully unravelled.

The Enron scam in Dhabol in the power sector and the Mukta-Panna scam in the oil sector shows the true nature of globalisation. It is private loot of public capital: this is the essence of globalisation under the Fund/Bank aegis. If India does not want to follow in the wake of the Asian “tigers” it will have to re-think its strategies. The people of this country will not let its leaders fritter away indefinitely national assets the Mukta-Panna or the Dhabol way.